If you are buying a business in South Carolina, you will want to obtain tax clearance from the state to make sure you are not taking on the seller’s outstanding tax liability. Buyers often assume that if they acquire a business through an asset purchase as opposed to a stock sale then they will not be responsible for any of the seller’s unpaid taxes. However, most states have successor liability rules that allow the transfer of certain tax liability to the buyer even in an asset purchase. Often this type of successor liability is limited to sales and use tax and other excise taxes that a seller collects on behalf of the state.
Obtaining a tax clearance letter from the state is important assurance for a buyer in an asset or a stock purchase that they are not taking on unpaid tax liabilities of the seller. In addition to obtaining tax clearance from the state, a buyer of a South Carolina business also should check state UCC records to make sure the business’s assets are not encumbered by any liens.
A tax clearance letter (known in South Carolina as a certificate of tax compliance) is proof that a business has filed all required tax returns or paid all its taxes, based on all information available. Certificates of tax compliance are issued by the South Carolina Department of Revenue (SCDOR). You can request a certificate by fax, email, or regular mail. There is a $60 fee to process the request. Electronic payments are not accepted.
Regardless of how you submit your request, use Form C-268, Certificate of Tax Compliance Request Form. A request must come from a current officer or owner of the business (for example, a member of an LLC or a partner of a partnership) — or a person authorized by the taxpayer through a power of attorney. That means that if you’re trying to buy a business, you’ll need the cooperation of the current owner to get a letter.
Upon receiving a request, the SCDOR will research the status of the taxpayer (the business for sale). If the taxpayer is not in compliance, the SCDOR will send a communication directly to the taxpayer with details and information about how to remedy the situation. There are also options to have the taxpayer’s information sent to someone other than the taxpayer. In such cases, that other person must be authorized by the taxpayer to receive the information. The taxpayer also has the specific option to authorize the other person to receive the information regardless of whether the taxpayer is in compliance. For more information, check the SCDOR website.
If you are buying a South Carolina business, you’ll also want to make sure the assets you are acquiring are not subject to any liens. You can do this by checking the state’s public records for creditor financing statements. This gives you notice of what secured debt you’ll be acquiring (if any) related to the business’s equipment, inventory, and possibly other items. You will want to do this whether you are buying the business in an asset or stock purchase.
You can do a UCC filing search on the South Carolina Secretary of State (SOS) website. A free online UCC search will tell you only whether a particular business has any UCC financing statements on file. For any additional information you must pay a fee. You can either set up a subscription with the SOS or pay for the details of each search you run.
If you are buying a business, there are other possible kinds of business debt not covered here that you might want to investigate, particularly in a stock acquisition. This could include, for example, unpaid local taxes, guarantees, or other private contractual obligations.
For all the essential information about buying or selling a business, get The Complete Guide to Buying a Business (Nolo) and The Complete Guide to Selling a Business (Nolo), both by Fred S. Steingold.